Tag: Advantages

Advantages

What are a Advantages? A condition or circumstance that puts one in a favorable or superior position. The opportunity to gain something; benefit or profit. A favorable or desirable feature. A score marking a point interim between deuce and winning the game.
 
Any trait, feature or aspect that gives an individual, entity or any other thing a more favorable opportunity for success. “The advantages of Mary’s plan, compare to Bob’s plan, were that it required less money and manpower, and would complete 5 days sooner.” “He had an advantage over the other job candidates due to his personal relationship with the CEO.” Opposite of disadvantage.
  • Why are Training and Development required in HRM?

    Why are Training and Development required in HRM?

    The Concept of the study Explains – Training and Development required in HRM – Importance, advantages, disadvantages, and process. There is continuous pressure for efficiency and if the organization does not respond to this pressure, it may find itself rapidly losing its market.

    Understanding and Learn, Why are Training and Development required in HRM?

    Also, Training imparts skills and knowledge to employees so that they contribute to the organization’s efficiency and can cope with the pressures of a changing environment. Corporate Training at crazymonkeycafe.com.

    As well as, The viability of an organization depends to a considerable extent on the skills of different employees, especially that of the managerial cadre, to relate the organization to its environment. Therefore, in any organization, there is no question of whether to train its employees or not, the only choice is that of following a particular training and development method. Three factors that necessitate continuous training in an organization are technological advances, organizational complexity, and human relations. All these factors are related to each other.

    Training and development can play the following role in an organization.

    Increases Efficiency!

    Training and development increase skills for doing a job in a better way. This is more important in the context of changing technology because the old method of working may not be relevant. As such, training requires even to maintain a minimum level of output.

    Increases Morale!

    Training and development increase the morale of employees. High morale is evidenced by employee enthusiasm. Training increases employee morale by relating their skills with their job requirements. The Possession of skills necessary to perform a job well often tends to meet human needs such as security and ego satisfaction. Trained employees can see the jobs in a more meaningful way.

    Better Human Relations!

    Training increases the quality of human relations in an organization. The growing complexity of organizations has led to various human problems like inter-personal and inter-group problems. These problems can be overcome by suitable human relations training.

    Reduced Supervision!

    Trained employees require less supervision. Autonomy and freedom can be given if the employees are trained properly to handle their jobs without the help of supervision. With reduced supervision, a manager can increase his span of control in the organization which saves cost to the organization.

    Increased Organizational Viability and Flexibility!

    There is no greater organizational asset than trained personnel because these people can turn the other assets into a productive whole. Also, Viability relates to the survival of the organization during bad days and flexibility relates to sustaining its effectiveness despite the loss of its key personnel and making short-term adjustments with the existing personnel. Such adjustment is possible if the organization has trained people who can occupy the positions vacated by key personnel. The organization, which does not prepare a second line of personnel who can ultimately take charge of key personnel, may not be successful in the absence of such key personnel for whatever reason.

    Importance of Training and Development:

    For companies to keep improving, organizations need to have continuous training and development programs for their employees. Competition and the business environment keep changing, and hence it is critical to keep learning and picking up new skills. The importance of training and development is as follows:

    • Optimum utilization of Human resources
    • Development of skills
    • To increase the productivity
    • To provide the zeal of team spirit
    • For improvement of organizational culture
    • To improve quality, safety
    • To increase profitability
    • Improve the morale and corporate image
    Need for Training and Development:

    Training and development of employees is a costly activity as it requires a lot of quality input from trainers as well as employees. However, the company must revise its goals and efficiencies with the changing environment. Here are a few critical reasons why the company endorses training and development sessions.

    • When management thinks that there is a need to improve the performance of employees
    • To set up the benchmark of improvement so far in the performance improvement effort
    • To train about the specific job responsibility
    • To test the new methodology for increasing productivity
    Advantages of training and development:

    Training and development have a cost attached to it. However, since it is beneficial for companies, in the long run, they ensure employees stand trained regularly. Some advantages are:

    1. Helps employees develop new skills and increases their knowledge.
    2. Improves efficiency and productivity of the individuals as well as the teams.
    3. Proper training and development can remove bottlenecks in operations.
    4. New & improved job positions can be created to make the organization leaner.
    5. Keeps employees motivated and refreshes their goals, ambitions, and contribution levels.
    Disadvantages of training and development:

    Even though there are several advantages, some drawbacks of training and development are mentioned below:

    1. It is an expensive process that includes arranging the correct trainers and engaging employees for non-revenue activities.
    2. There is a risk that after the training and development session, the employee can quit the job.
    Training and Development Process:

    Training and development is a continuous process as the skills, knowledge, and quality of work need constant improvement. Since businesses are changing rapidly, companies must focus on training their employees after constantly monitoring them & developing their overall personality.

    The steps for training and development processes are:

    • Determine the need for training and development for individuals or teams
    • Establish specific objectives & goals that need to be achieved
    • Select the methods of training
    • Conduct and implement the programs for employees
    • Evaluate the output and performance post the training and development sessions.
    • Keep monitoring and evaluating the performances and again see if more training is required.

    Human resource management regards training and development as a function concerned with organizational activity aimed at bettering the job performance of individuals and groups in organizational settings. Training and development can be described as “an educational process which involves the sharpening of skills, concepts, changing of attitude and gaining more knowledge to enhance the performance of employees”. The field has gone by several names, including “Human Resource Development”, “Human Capital Development” and “Learning and Development”.

    Some explanations of training and development are some of the major HRM tasks:

    Most organizations see training and development as an integral part of human resource development activity. Centenary Turn has focused the same focus on organizations globally. Many organizations have made training hours mandatory for employees per year, keeping in mind the fact that technology is keeping employees at a very fast rate.

    So what is training and development? Is it really important for organizational existence or can they survive without prejudice? Training and development is one more thing or are they different? Training can be described as an effort to improve or improve additional qualifications or skills in an employee employed at present to increase performance or productivity.

    In technical training, there is a change in attitude, skill, or knowledge of a person with resultant improvement in practice. To be effective for the training, it should plan activities conducted entirely after analysis and goal after some qualifications, most importantly it is to organize in a learning environment.

    When designing a training program, it should keep in mind that both individual goals and organizational goals are kept in mind. Although it may not be possible to ensure sync, competencies are chosen in such a way that victory and win for the employee and organization are created.

    Generally, the organization prepares its training calendar at the beginning of financial training, where training needs stand identified for employees. This requirement of identification called ‘training requirement analysis’ is a part of the performance evaluation process. After the analysis, the number of training hours with training intervention was fixed, and it spread strategically in the following year.

    A better understanding of Development:

    Very time training with development is confusing, both components of the same system are different in some cases. The opportunities created to help growth workers grow. It is in the long run or the future in the future against the training, which focuses on the current job. It is not limited to the path of a job in the current organization but can also focus on other developmental aspects.

    In Gaudier, for example, employees are expected to participate in the training program on presentation skills essentially, though they are also free to choose a course on ‘Leadership approach through literature’. While the presentation skill program helps them on the job, literature-based programs can directly help them or not.

    Similarly, many organizations prefer some employees for the programs to develop them for future posts. This is done based on the current attitude, skills and abilities, knowledge, and performance of the employee. Most leadership programs are of this nature, with the view to making and nurturing leaders for tomorrow.

    Therefore, the major difference between training and development is that training stands often focused on current employee requirements or eligibility intervals, while development concerns itself with the preparation of people for assignments and responsibilities in the future.

    With technology, with more desk workers and industrial workers standing replaced by knowledge workers, training and development are at the forefront of HRD. In response to training and business needs, it is now in the Human Development Department to play an active leadership role.

    Why are Training and Development required in HRM - ilearnlot
    Image Credit to ilearnlot.com.
  • Explaining Product Development in Production Management!

    Explaining Product Development in Production Management!

    A successful product development requires a total-company effort. The concept of the Study – Explaining Product Development in Production Management: Standardization – advantages and disadvantages, Simplification, Specialization – advantages and disadvantages, Diversification – advantages and disadvantages, and Automation – advantages and disadvantages. The most successful innovating companies make a consistent commitment of resources to product development, design a new product strategy that is linked to their strategic planning process, and set up formal and sophisticated organizational arrangements for the managing product development process. Also learn, Explaining Product Development in Production Management!

    Understand and Learn, Explaining Product Development in Production Management!

    The product development process for finding and growing new products consist of eight major steps as explained below;

    • Idea generation
    • Idea screening
    • Concept development and testing
    • Marketing Strategy Development
    • Business analysis
    • Product Development
    • Test marketing
    • Commercialization

    We shall briefly describe these steps: 

    Following are:

    Idea Generation: 

    It is a systematic search for new product ideas. A company has to generate many ideas in order to find good ones. The search for new products should be systematic rather than haphazard. Top management should state what the products and markets to emphasize. It should state what the company wants from its new products, whether it is high cash flow, market share or some other objective. To obtain a flow of new-products ideas, the company can tap many sources. Major sources of product ideas include internal sources like customers, competitors, distributors, and suppliers. It has been found that more than 55 percent of all product ideas come from internal sources.

    Idea screening:

    The purpose of idea generation is to create a large number of ideas. The purpose of the succeeding stages is to reduce that number. The first reducing stage is idea screening. The purpose of screening is to spot good ideas and drop poor ones. Most companies require their executive to write up the new product ideas in a standard format that can be reviewed by a new product committee. The write up describes the product, the target market, the competition and makes some rough estimate of market size, product development time and costs, manufacturing costs and rate of return. The committee then evaluates the idea against a set of general criteria.

    Concept Development and testing:

    Customers do not buy product ideas, they buy the product concepts. The concept testing calls for testing new product concepts with a group of target consumers. After being exposed to the concept, consumers then may be asked to react to it by asking a few questions.

    Market strategy development:

    The next step is market strategy development, designing an initial marketing strategy for introducing the concept to the market. The market strategy statement consists of three parts:

    • The first part describes the target market; the planned product positioning, market share and profit goals for the first few years.
    • The second part of the marketing strategy statement outlines the product planned price, distribution, and marketing budget for the first year.
    • The third part of the marketing strategy statement describes the planned long-run sales, profit goals, and marketing mix strategy.
    Business Analysis:

    Once management has decided on its product concept and marketing strategy, it can evaluate the business attractiveness of the proposal. Business analysis involves a review of its sales, cost, and profit projections for a new product to find out whether they satisfy the company‘s objectives.

    Product development:

    If the product concept passes the business test, it moves into product development. Here, R&D or engineering develops the concept into a physical product. The R&D department will develop one or more physical versions of the product concept, R&D hopes to design a prototype that will satisfy and excite consumers and that can be produced quickly and at budgeted cost. When the prototype is ready it must be tested. Functional tests are then conducted to make sure that the product performs safely and effectively.

    Test Marketing:

    If the product passes functional and consumer tests, the next step is test marketing, the stage at which the product and marketing program are introduced into more realist marketing setting. This allows the marketer to find potential problems so that these could be addressed.

    Commercialization:

    Is introducing the new product to the market.

    Tools for Product Development: 

    The following are various product development techniques adopted by different organizations: 

    Standardization: 

    This means fixation of some appropriate size, shape, Quality, manufacturing process, weight, and other characteristics as standard to manufacture a product of desired variety and utility e.g. manufacture of television sets of standard size of the screen using standard components and technology; shaving blades are made of standard size and shape to suit every kind of razor. The concept of standardization is applicable to all factors of production namely men, materials, machines and finished goods. These standards can become the basis to evaluate the performance of various components of production in the manufacturing process. In the words of Behel, Smith, and Stackman:

    “A standard is essentially a criterion of measurement, quality, performance, the practice established by custom, consent or authority and used as a basis for comparison over a period of time. The setting of standards and the coordination of the industrial factors to comply with these standards and to maintain them during the periods for which they are effective is known as industrial standardization”.

    According to Dexter S Kimball of production control operation in the manufacturing, the sense is the reduction of any one line to fixed types, sizes, and characteristics.” Standardization becomes the basis of production control operations and works as a catalyst in directing and operating the working of a business enterprise. It identifies and compares various products, systems, and performances in an enterprise. It is the function of the department responsible for designing the product to provide the guidelines and infrastructure for standardization of the whole system keeping into consideration the designing stage towards standardization may be too expensive to be rectified.

    For an organization designing the product without considering the standardization, aspect is of no value of significance. Franklin F. Folts has described the concept of standardization as,” simplification of product lines and concentration on a restricted predetermined variety of output is one common application of the principles of standardization may be extended to all factors in the production process”. Standardization is an instrument to manufacture the maximum variety of products out of the minimum variety of components by means of a minimum variety of machines and tools. This decreases working capital requirements and a reduction in manufacturing costs.

    Standardization also implies that non-standard items are not to be manufactured except when consumers order them specially. Some standards are enacted by law viz. automobile windscreen which must be made of safety glass. Usually, there are institutions, societies, and governmental departments that regulate the standards. In a factory, it is best to have standardization committee drawing its members from sales, engineering, production purchasing, quality control, and inspection.  Sales department and engineering department have to work closely in effecting changes towards standardization because the older products that have been sold are affected by after-sales service needs. Within an organization, it is the engineering department who sets standards for the materials to be procured and specification of the end products and the mode of testing the products. 

    Advantages of standardization: 

    • Standardization in designing, purchasing of raw material, semi-finished and finished goods and of the manufacturing process tries to eliminate wastage and reduces the cost of production. Reduction in varieties of raw materials means reduced investments in stocks and less attention to stock control.
    • Standardize product components reduce tool cost, permits larger and more economical lot sizes of production, avoids losses for obsolescence and reduces capital requirements for work in process.
    • Production in larger quantities can be planned which results in fewer set-up costs.
    • By minimizing the operations in the production process it provides facility to introduce mechanization and use of more specialized tools and equipment.
    • Service and maintenance costs, as well as marketing expenses, are reduced.
    • Encourages the manufacturer to products of the new style, use, and performance with an object to generate more customers.
    • The value of the standardized product lying in stocks or in stocks or in transit can be easy for the purpose of advancing loans.

    Disadvantages of Standardization: 

    Product standardization leads to some disadvantages also. These are:

    • Too much standardization has an adverse effect on the efficiency and morale of the workers. They, in the long run, feel bored and fed-up in doing the same routine again. The spirit of challenge and initiative vanishes with the passage of time.
    • During the initial process of product Development where frequent improvements and changes may be necessary to bring the product and production process up to the mark, standardization may create obstacles in innovations.
    • For small-scale enterprises, standardization may not be advantageous.

    Simplification:

    In production, simplification can be done at two places namely (i) for product or) for work. Simplification in product development is used for products; In fact, simplification should be done before standardization.

    In the words of F. Clark and Carrie, “simplification in an enterprise connotes the elimination of excessive and undesirable or ‘marginal lines’ of product to hammer out waste and to attain economy connotes the elimination of excessive and undesirable or ‘marginal lines’ of product to hammer out waste and to attain economy coupled with the main object of improving quality and reducing costs and prices leading to increased sales.”

    W.R Spiegel and R.H Lansburg also define,” Simplification refers to the elimination of superfluous varieties, size dimensions etc.” Simplification can be advantageous to both producer and the consumer of a product. These can be listed as:

    To the producer: 
    • Eliminates surplus use of materials to provide economy in production cost.
    • More production increases the inventory size which avoids delays in supply.
    • Less obsolescence of materials and machinery.
    • Due to simplification in operation, the efficiency of the production process increase and this leads to more productive due to the scope of better training and learning facility with simplification operation.
    • Human efforts become more productive due to the scope of better training and learning facility with simplified operation.
    • After-sales service prospects are minimized.
    • Production planning and control operations become easy and simple.
    • Reduction in cost of production leads to more sales.
    To jobber-wholesalers and detailers:  
    • Increased turn over.
    • Sales effort on fewer items.
    • Reduction in storage space for.
    • Fewer overheads and handling expenditures.
    To the consumer: 

    Explain it to each one with Advantage and Disadvantage, the following are:

    Specialization: 

    Specialization implies expertise in some particular area or field. It is experienced that as the companies expand the range of their products, manufacturing system, involves more and operations for transforming inputs into output. This often results from an increase in operating cost and a decline in profits. The problem can be solved by identifying the products contributing to losses and then eliminate their production. This will lead to confine the production of profitable items only and consequently a reduction in the number of operation required in the process. The minimization of operation can lead to the use of expert knowledge, skill, and techniques in the production system, the nature and the type of product. The operation required manufacturing it and the nature of the market. Specialization implies the reduction in the variety of products manufacturing by the organization.

    Advantages of specialization are: 

    • Specialization and standardization lead to higher productivity.
    • In the case of output and reduction in per unit cost of production,
    • Savings in the purchase of raw material and improvement in the quality of the finished goods.

    Disadvantages of specialization are: 

    • Less flexibility in adjustment to changed situations.
    • Monotony and boredom may adversely affect the efficiency.

    Diversification:

    It implies the policy of producing different types of products by an enterprise. Thus it is reverse of simplification are associated with the nature of the industry e.g. in the case of capital goods industry simplification is more important as the customers give preference to economy, accuracy and performance of the product, whereas in a consumer goods industry diversification leads to produce a variety of goods in; terms of style, shape, color, design etc. The establishment facing tough competition is forced to diversify this activates to capture the market. In general, diversification can be adopted for the purpose of the market. In general, diversification can be adopted for the purpose of (a) utilization of idle/surplus resources, (b) stabilization of sales, (c) to cope with demand fluctuations and (d) for the survival of the organization.

    Due care and precautions should be taken in the formulation of diversification policy. Proper and extensive market analysis at different levels of the quality and quantity of the products should be done to determine the levels of profitability. This will help in selecting the most appropriate diversification strategy under the prevailing circumstances.

    Advantages of Diversifications are: 

    • Increase in sales due to the production of different kind of products. This also leads to an increase in the volume of business.
    • Needs of the wider section of the consumer are fulfilled.
    • Risk minimization’ in the case of quick and unpredictable demand variations.
    • Uniform and balanced production programme can be chalked out without any consideration of wastage by production by-products.
    • Elimination of wastage by producing by-products.

    Disadvantages of Diversifications are:  

    • Due to the increase in the number of operations, the production process becomes quite complicated and sometimes expensive.
    • Production Planning and control operation becomes complicated and time-consuming requiring extra Efforts.
    • The size and the variety of items in; the inventory increases with diversification introducing more problems.
    • The worker of different types of skill and expertise is required.

    Automation in Business Enterprises: 

    The concept of automation has brought another revolution in the industrial world. This has resulted in phenomenal growth in the industrial arena by providing a wide range of products with minimum cost and efforts.

    Automation implies the use of machines and equipment for performing physical and mental operations in a production operation in place of human beings. Automation can be visualized as an electronic brain with the capacity of taking routine and logical decisions connected with the control and planning functions of management. Routine decisions can be like scheduling, routing, dispatching and inspection of modifications of operations to see that the whole system operates according to the planned strategy.

    In the absence of any human intervention or activity, automation can be considered as a self-regulating and controlling system. Mechanization provides the self-regulating property and performing manual operations by means of mechanized operations.

    Thus automation can be defined as “A system of doing work where material handling, production process, and product design are integrated through mechanization of thoughts and to achieve a self-regulating system.

    In automation, the machines and equipment required to perform various operations process are sequents arranged in order of hierarchy of operations. Electronic devices are used to record, store and interpretation of information at various stages of production. Machines are used to operate other machines.

    Automation can be done at various levels of the manufacturing system in parts or as a whole. Some of the situations can be:

    • Handling of raw materials, semi-finished goods or finished goods. Instead of doing the work manually the operation can be done by means of trolleys, conveyor belts, overhead cranes, lifts etc. This eliminates chances of losses due to handling and saves valuable time.
    • Sophisticated, reliable and efficient machines and equipment can be used in the production process. This will ensure both the quality and quantity of the product desired.
    • Inspection and quality control operations can be done by means of mechanical devices. This eliminates the chances of human bias and error.

    Use of machines and equipment in automation ensures production of high-quality products at minimum cost. This also increases the confidence of consumers in the product and stabilizes the demand for the product. There is a general fear that automation leads to unemployment. But on the other hand operation of machines and equipment in the system need highly skilled and qualified manpower. So the technical skills of the system increase with the reduction in size. It goes without saying that automation ensures the high level of efficiency and capacity utilization.

    Advantages of automation are:

    • Better quality of goods and services,
    • Reduction in direct labor cost,
    • Effective control of operations,
    • Greater accuracy, more output, greater speed,
    • Minimization of waste,
    • Production planning and control is to be done in the beginning only,
    • Working conditions can be improved greatly since much of the work follows an orderly path,
    • The waste does not come into much contact with the equipment; also the design of the special purpose equipment is usually superior to that of general purpose equipment. This improves overall safety considerably,
    • Direct and indirect costs, Inventories, Set-up times and lead times are all reduced. Space and equipment utilization is improved,
    • Since the human inputs in the production are minimized, the quality is also improved. Human beings are more erratic than machines,
    • Throughput time is reduced and therefore service to the customers is enhanced.

    Disadvantages of automation are:

    • High capital investment,
    • High maintenance costs and requirement of the labor of high caliber,
    • Requires highly skilled manpower,
    • Can create unemployment,
    • Scheduling and routing operations are difficult and time-consuming,
    • Restriction in designing and construction of buildings,
    • Larger inventories,
    • Continuous power supply,
    • Automation equipment is highly inflexible i.e. if a new product is to be introduced the existing equipment may have to be salvaged entirely,
    • Any break down anywhere would lead to complete shut-down.

    Explaining Product Development in Production Management - ilearnlot
    Image Credit to @pixabay.

  • Bill of Exchange: Content, Parties, and Advantages!

    Bill of Exchange: Content, Parties, and Advantages!

    Explain and Learn, Bill of Exchange: Content, Parties, and Advantages!

    The Concept of the study Explains – Bill of Exchange: Content of Bill of Exchange, Parties of Bill of Exchange, and Advantages of Bill of Exchange! Definition of Bill of Exchange: Bill of Exchange, can be understood as a written negotiable instrument, that carries an unconditional order to pay a specified sum of money to a designated person or the holder of the instrument, as directed in the instrument by the maker. The bill of exchange is either payable on demand, or after a specified term. Also learned, Bill of Exchange: Content, Parties, and Advantages!

    In a business transaction, when the goods are sold on credit to the buyer, the seller can make the bill and send it to the buyer for acceptance, which contains the details such as name and address of the seller and buyer, amount of bill, maturity date, signature, and so forth.

    Features of Bill of Exchange:

    • An instrument which a creditor draws upon his debtor.
    • It carries an absolute order to pay a specified sum.
    • The sum is payable to the person whose name is mentioned in the bill or to any other person, or the order of the drawer, or to the bearer of the instrument.
    • It requires to be stamped, duly signed by the maker and accepted by the drawee.
    • It contains the date by which the sum should be paid to the creditor.

    For Example:

    Sam gives a loan of Rs.1,00,000 to Alex, which Alex has to return after three months. Further, Joseph has bought certain goods from Peter, on credit for Rs. 1,00,000. Now, Joseph can create a document directing Alex, to pay Rs. 1,00,000 to Peter, after three months. The instrument will be called as Bill of Exchange, which is transferred to Peter, on whom the payment is due, for the goods purchased from him.

    Parties to a Bill of Exchange:

    There are three parties viz. ‘Drawer’, ‘Drawee’ and ‘Payee’ to a bill of exchange.

    1. Drawer: A bill of exchange is drawn upon the buyer/debtor by the seller/creditor and the drawer is the person who makes and draws the bill. The drawer is entitled to receive money from the debtor.
    2. Drawee: The person upon whom the bill of exchange is drawn is known as drawee. Bill of exchange is drawn on the drawee who is the purchaser of goods. The Drawee of a bill is called the acceptor when he writes the words “accepted” and puts his signatures on it. This process is known as acceptance. After acceptance, the bill of exchange becomes a legal document. This document now binds the drawee to honor the bill on the due date. This acceptance may be general or qualified. In the case of general acceptance, without stating any conditions, the only sign of the acceptor is required. However, in the case of qualified acceptance, the name of the bank or specified place for payment is mentioned.
    3. Payee: The person to whom the payment is made is known as payee. In some cases, the drawer of the bill also becomes the payee when he himself keeps the bill till the date of maturity. Drawer and Payee is usually the same person.

    However, in the following cases drawer and payee are two different persons:

    (i) When the bill is discounted by the drawer, the person who discounted the bill becomes the payee.

    (ii) When the bill is endorsed to a creditor, the endorsee will become the payee.

    The content of Bills of Exchange:

    The contents of bills of exchange are as under:

    • Date: The date of the bill on which it is drawn should be written on the top right comer of the bill. This aspect is very important to determine the maturity date of the bill.
    • Term: This is the tenure of the bill and runs from the date of the bill. This should be specified in the body of the bill. The grace period of three days should be given after the expiry of the term from the date of the bill.
    • Amount: Amount of the bill should be given both in figures and words. The amount in figures should be mentioned on the top left corner of the bill and amount in words should be mentioned in the body of the bill.
    • Stamp: Stamp of proper value which depends on the amount of bill shall be affixed on the bills of exchange.
    • Parties: There may be three parties to the bills of exchange, drawer, drawee, and payee. However, in some cases, drawer and payee may be the same person. All the names of the parties and their addresses should also be invariably mentioned in the bills of exchange.
    • For Value Received: This aspect is most important in the sense that law does not consider those agreements which have been made without consideration. Consideration means in lieu of and in the context of bills of exchange, it means that the bill has been issued in exchange of some consideration i.e., benefit has already been received.

    Advantages of Bills of Exchange:

    The bills of exchange are used frequently in business as an instrument of credit due to the following reasons:

    • Legal Relationship: Issuing bills of exchange provides a framework which converts and establishes a legal relationship between seller and buyer, from creditor and debtor to drawer and drawee. In the case of any dispute between the parties, this relationship provides a conclusive proof in the court of law.
    • Terms and Conditions: Bill of exchange contains all terms and conditions of payments viz., amount of the bill, date of payment, place of payment, interest to be paid if any. The maturity date of the bill is also known to the parties to the bill so they can make necessary arrangement for funds.
    • Mode of Credit: Bill of exchange has been defined as a negotiable instrument under the Negotiable Instruments Act, 1881. The buyer can buy the goods on credit and pay after the period of credit with the help of bill of exchange. In case of urgency, the drawer can also get the payment by discounting the bill from the bank and without waiting for the maturity period.
    • Easy Transferability: Bill of exchange can be used for settling the debt of the creditors. Mere delivery and endorsement of the bill give a valid title to the endorsee.
    • Wider Acceptance: In case of the foreign bill, wider acceptance is given to the parties through which payments can be received and made easily.
    • Mutual Accommodation: Sometimes, the bill can be issued for mutually accommodating the parties so that financial help can be given to each other.

    Bill of Exchange_ Content Parties and Advantages - ilearnlot

     

  • Commercial Bills: Meaning, Types, and Advantages

    Commercial Bills: Meaning, Types, and Advantages

    A Commercial Bill is one which arises out of a genuine trade transaction, i.e. credit transaction. As soon as goods are sold on credit, the seller draws a bill on the buyer for the amount due. As well as discuss the Treasury Bills, this article explains Commercial Bills. The Commercial Bills explain in their key points; meaning, types, and advantages. The buyer accepts it immediately agreeing to pay the amount mentioned therein after a certain specified date. Thus, a bill of exchange contains a written order from the creditor to the debtor, to pay a certain sum, to a certain person, after a creation period. A bill of exchange is a “self-liquidating” paper and negotiable/it is drawn always for a short period ranging between 3 months and 6 months.

    Explain and Learn, Commercial Bills: Meaning, Types, and Advantages!

    Meaning of Commercial Bills Market:

    The commercial bills are issued by the seller (drawer) on the buyer (drawee) for the value of goods delivered by him. These bills are for 30 days, 60 days or 90 days maturity. If the seller needs funds, he may draw a bill and send it to the buyer for the seller needs funds, he may draw a bill and send it to the buyer for acceptance.

    The buyer accepts the bill and promises to make the payment on the due date. He may also approach his bank to accept the bill. The bank charges a commission for the acceptance of the bill and promises to make the payment if the buyer defaults. Once this process is accomplished, the seller can sell it in the market. This way a commercial bill becomes a marketable investment.

    Usually, the seller will go to the bank for discounting the bill. The bank will pay him after deducting the interest for the remaining period of the bill and service charges from the face value of the bill. The interest rate is called the discount rate on the bills. The commercial bill market is an important channel for providing short-term finance to business.

    However, the instrument did not become popular because of two factors:

    1. Cash credit scheme is still the main form of bank lending, and
    2. Big buyers in the corporate sector are still unwilling to the payment mode of commercial bills.

    Definition of Bill of Exchange:

    “An instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of a certain person or to the beater of the instrument”.

    What is a Bill of Exchange?

    According to section 5 of the Negotiable Instruments Act, 1881, defines Bill Of Exchange as,

    “A bill of exchange is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument.”

    A promise or order to pay is not “conditional”, within the meaning of this section and section 4, by reason of the time for payment of the amount of any installment thereof being expressed to be on the lapse of certain period after the occurrence of a specified event which, according to the ordinary expectation of humanity, is certain to happen, although the time of its happening may be uncertain.

    The sum payable may be “certain”, within the meaning of this section and section and section 4, although it includes future indicated rater of change, or is according to the course of exchange, or is according to the course of exchange, and although the instrument provides that, on default of payment of an installment, the balance unpaid shall become due.

    The person to whom it is clear that the direction is given or that payment is to make maybe a “certain person,” within the meaning of this section and section 4, although he misnames or designated by description only.

    Types of Commercial Bills:

    Many types of commercial bills are in circulation in a bills market. They can broadly classify as follows:

    Demand and Using Bills: 

    Demand bills are others call sight bills. These bills are payable immediately as soon as they present to the drawer. No time of payment specify and hence they are payable at sight. Using bills call time bills. These bills are payable immediately after the expiry of the period mentioned in the bills. The period varies according to the established trade custom or usage prevailing in the country.

    Clean Bills and Documentary Bills: 

    When bills have to be accompanied by documents of title to goods like Railways, receipt, Lorry receipt, Bill of Lading, etc. the bills call documentary bills. These bills can further classify into D/A bills and D/P bills. In the case of D/A bills, the documents accompanying bills have to deliver to the drawee immediately after acceptance. Generally, D/A bills draw on parties who have good financial standing.

    On the order hand, the documents have to hand over to the drawee only against payment in the case of D/P bills. The documents will retain by the banker. Till the payment of such bills. When bills are drawn without accompanying any documents they are called clean bills. In such a case, documents will be directly sent to the Drawee.

    Inland and Foreign Bills: 

    Inland bills are those drawn upon a person resident in India and are payable in India. Foreign bills draw outside India and they may be payable either in India or outside India. They may draw upon a person resident in India also. Foreign boils have their origin outside India. They also include bills draw on India make payable outside India.

    Export and Foreign Bills: 

    Export bills are those draw by Indian exports on importers outside India and import bills draw on Indian importers in India by exports outside India.

    Indigenous Bills: 

    Indigenous bills are those draw and accept according to native custom or usage of trade. These bills are popular among indigenous bankers only. In India, they call “Hundis” the Hundis knows by various names such as – Shah Jog, Nam Jog, Jokhani, Termainjog, Darshani, Dhanijog, and so on.

    Accommodation Bills and Supply Bills: 

    If bills do not arise out of genuine trade transactions, they call accommodation bills. They know as “kite bills” or “wind bills”. Two parties draw bills on each other purely for mutual financial accommodation. These bills are discount with bankers and the proceeds are sharing among themselves. On the due dates, they are paying.

    Supply bills are those neither draw by suppliers or contractors on the government departments for the goods nor accompanied by documents of title to goods. So, they do not consider as negotiable instruments. These bills are useful only to get advances from commercial banks by creating a charge on these bills.

    Operations in Commercial Bills Market:

    From the operations point of view, the bills market can classify into two viz.

    • Discount Market
    • Acceptance Market
    Discount Market:

    Discount market refers to the market where short-term genuine trade bills discounts by financial intermediaries like commercial banks. When credit sales affect, the seller draws a bill on the buyer who accepts it promising to pay the specified sum at the specified period. The seller has to wait until the maturity of the bill for getting payment. But, the presence of a bill market enables him to get paid immediately.

    The seller can ensure payment immediately by discounting the bill with some financial intermediary by paying a small amount of money called “Discount rate” on the date of maturity, the intermediary claims the amount of the bill from the person who has accepted the bill. In some countries, some financial intermediaries specialize in the field of discount.

    For instance, in the London Money Market, there are specializing in the field discounting bills. Such institutions are conspicuously absent in India. Hence, commercial banks in India have to undertake the work of discounting. However, the DFHI has been establishing to activate this market.

    Acceptance Market:

    The acceptance market refers to the market where short-term genuine trade bills accept by financial intermediaries. All trade bills cannot discount easily because the parties to the bills may not be financially sound. In case such bills accept by financial intermediaries like banks, the bills earn a good name and reputation and such bills can readily discount anywhere.

    In London, there are specialist firms call acceptance house which accepts bills draw by trades and import greater marketability to such bills. However, their importance has declined in recent times. In India, there are no acceptance houses. The commercial banks undertake the acceptance business to some extent.

    Advantages of Commercial Bills:

    Commercial bill market is an important source of short-term funds for trade and industry. It provides liquidity and activates the money market. In India, commercial banks lay a significant role in this market due to the following advantages:

    Liquidity:

    Bills are highly liquid assets. In times of necessity, bills can convert into cash readily using rediscounting them with the central bank. Bills are self-liquidating in character since they have fixed tenure. Moreover, they are negotiable instruments and hence they can transfer freely by mere delivery or by endorsement and delivery.

    The certainty of Payment:

    Bills draw and accept by business people. Generally, business people use to keeping their words and the use of the bills imposes strict financial discipline on them. Hence, bills would honor on the due date.

    Ideal Investment:

    Bills are for periods not exceeding 6 months. They represent advances for a definite period. This enables financial institutions to invest their surplus funds profitably by selecting bills of different maturities. For instance, commercial banks can invest their funds on bills in such a way that the maturity of these bills may coincide with the maturity of their fixed deposits.

    In the case of the bills dishonor, the legal remedy is simple. Such dishonor bills have to simply note and protest and the whole amount should debit to the customer’s accounts.

    High and Quick Yield:

    The financial institutions earn a high quick yield. The discount dedicates at the time of discounting itself whereas, in the case of other loans and advances, interest is payable only when it is due. The discounts rate is also comparatively high.

    Easy Central Bank Control:

    The central bank can easily influence the money market by manipulating the bank rate or the rediscounting rate. Suitable monetary policy can take by adjusting the bank rate depending upon the monetary conditions prevailing in the market.

    Commercial Bills_ Meaning Types and Advantages - ilearnlot
    Commercial Bills: Meaning, Types, and Advantages.

    Drawbacks of Commercial Bills:

    In spite of these merits, the bills market has not been well developing in India. The reasons for the slow growth are the following:

    The Absence of Bill Culture:

    Business people in India prefer O.D and cash credit to bill financing, therefore, banks usually accept bills for the conversion of cash credits and overdrafts of their customers. Hence bills are not popular.

    The absence of Rediscounting Among Banks:

    There is no practice of re-discounting of bills between banks who need funds and those who have surplus funds. To enlarge the rediscounting facility, the RBI has permitted financial institutions like LIC, UTI, GIC, and ICICI to rediscount genuine eligible trade bills of commercial banks. Even then, bill financial is not popular.

    Stamp Duty:

    Stamp duty discourages the use of bills. Moreover, stamp papers of the required denomination are not available.

    The Absence of Secondary Market:

    There is no active secondary market for bills. The rediscounting facility is available in important centers and that too restrictive to the apex level financial institutions. Hence, the size of the bills market has been curtail to a large extent.

    Difficulty in Ascertaining Genuine Trade Bills:

    The financial institutions have to verify the bills to ascertain whether they are genuine trade bills and not accommodation bills. For this purpose, invoices have to scrutinize. It involves additional work.

    Limited Foreign Trade:

    In many developed countries, bill markets have been establishing mainly for financing foreign trade. Unfortunately, in India, foreign trade as a percentage to national income remains small and it is reflected in the bill market also.

    The Absence of Acceptance Services:

    There is no discount house or acceptance house in India. Hence specialized services are not available in the field of discounting or acceptance.

    The attitude of Banks:

    Banks are shy about rediscounting bills even the central bank. They tend to hold the bills till maturity and hence it affects the velocity of the circulation of bills. Again, banks prefer to purchase bills instead of discounting them.

  • Value Added Statements: Definition, Advantages, and Disadvantages!

    Value Added Statements: Definition, Advantages, and Disadvantages!

    Learn, Explain Value Added Statements: Definition, Advantages, and Disadvantages! 

    The main thrust of financial accounting development in the recent decades has been in the area of `how’ we measure income rather than `whose’ income we measure. The Concept of Value Added Statements: Meaning of Value Added Statements, Definition of Value Added Statements, Advantages of Value Added Statements, and Limitations or Disadvantages of Value Added Statements! The common belief of the traditional accountants that profit is a reward of the proprietors has been considered as a very narrow definition of income. This was so because previously the assets were assumed to be owned by the proprietor and liabilities were thought as proprietor’s obligations. Also learned, Guide to Theories in Human Resource Management! Value Added Statements: Definition, Advantages, and Disadvantages!

    This notion of proprietorship was accepted and practiced so as long as the nature of business did not experience revolutionary changes. However, with the emergence of corporate entities and the legal recognition of the existence of business entities separate from the personal affairs and interest of the owners led to the rejection of the proprietary theory.

    Definition: The financial statement which shows how much value (wealth) has been created by an enterprise through utilization of its capacity, capital, manpower, and other resources, and how it is allocated among different stakeholders (employees, lenders, shareholders, government, etc.) in an accounting period.

    Value added is now reported in the financial statements of companies in the form of a statement. Value Added Statement (VAS) is aimed at supplementing a new dimension to the existing system of corporate financial accounting and reporting. This is called value-added statement. This statement shows the value created; value added (value generated) and the distribution of it to interest groups viz. Employees, shareholders, promoters of capital and government. 

    Since VAS represents how the value or wealth created or generated by an entity is shared among different stakeholders, it is significant from the national point of view. ICAI, 1985 has defined Value Added Statement as a statement that reveals the value added by an enterprise which it has been able to generate, and its distribution among those contributing to its generation known as stakeholders.

    For the purpose of calculating the amount of value added and its distribution, the value added statement is prepared. The main concern of this statement lies in deriving a measure of wealth (i.e. value), the entity has contributed to the society through the collective efforts of the various stakeholders. This statement is prepared and published voluntarily with the annual financial reports. Thus the presentation of a statement of value-added aids in the disclosure of VA by an enterprise.

    The value-added statement may be defined as a statement, which shows the income of the company as an entity and how that is divided between the people who have contributed to its creation.

    Assumptions in Value Added Statements:

    Following are the basic assumptions which are used for computation of value-added income through the preparation of value-added statements.

    • VAS is a supplement, not a substitute to P&L account.
    • The same data which is recorded and processed by the conventional accounting system is used in the preparation of VAS.
    • The basic accounting concepts and principals of accounting remain the same in preparation of VAS.

    It is convenient to prepare Value Added statements from conventional Profit & Loss account. However, there is a lot of difference between these two statements since the income statements contain certain nonvalue-added items e.g. provisions, interests, non-trading profit, and losses, etc.

    Objectives of Value Added Statements:

    The main objectives of preparing Value Added Statements are:

    • To indicate the value or wealth created by an enterprise. In a way, it shows the wealth-creating ability of the organization.
    • To show the manner in which the wealth created is distributed amongst the employees, shareholders and the government. The pattern of distribution of value added can be clearly understood.
    • To indicate the organization’s contribution to national income.
    • To use it as a basis for making inter-firm and intra-firm analysis, for preparation of financial plans and targets, for developing productivity linked incentive schemes.

    Value Added Statements v/s Profit & Loss Account:

    The traditional Profit & Loss Account is prepared on the theory that the company was created by its shareholders and exists for their benefit. However, the traditional accounting system shows only the profits or losses made by a business enterprise and do not provide any information showing the extent to which the wealth is created by a business unit in a given period. 

    The newly developed accounting method of value added is aiming to add a new dimension to the existing system of corporate financial accounting and reporting through the disclosure of additional information regarding the amount of wealth an entity has created in an accounting period and how it has been divided up by the entity amongst those who have contributed to its creation.

    The statement of value-added conceives the company as the corporate entity in which those who provide capital and those who provide labor cooperate to create wealth which they share amongst themselves and with the government. When the value added statement is prepared, then the company is viewed as a `wealth’ producing entity of a number of groups which are known as stockholders. 

    The value-added statement shows the wealth obtained by its employees, government, providers of capital or business itself during a period of time and the manner in which the generated value is distributed among the employees, government and the providers of capital. It shows the companies contributing to the national income.

    The value-added statement is not a substitute, but a supplement to the Profit & Loss Account although it is based on the figures from the latter. The value-added statement is essentially a much simpler statement than the profit statement. The Profit & Loss Account is prepared on the basis of double entry system and its preparation is statutorily compulsory, but the value added statement is not prepared in the statutory account.

    Advantages of Value Added Statements:

    The following are some of the advantages of Value Added Statements:

    • Reporting on VA improves the attitude of employees towards their employing companies. This is because the VA statement reflects a broader view of the companies objectives and responsibilities
    • VA statement makes it easier for the company to introduce a productivity linked bonus scheme for employees based in VA. The employees may be given productivity bonus on the basis of VA/payroll ratio
    • VA based (e.g. VA/Payroll, taxation/VA, VA/sales, etc.) are useful diagnostic and predictive tools. Trends in VA ratios comparisons with other companies and international comparisons may be useful.
    • VA provides a very good measure of the size and importance of a company. To use sales figures or capital employed figures as a basis for company ranking can cause distortion. This is because sales may be inflated by large bought-in expenses or a capital-intensive company with a few employees may appear to be more important than a highly skilled labor intensive company
    • VA statement links a company’s financial accounts to national income. A company’s VA indicates the company’s contribution to national income.
    • Finally, VA statement is built on the basic conceptual foundation which is currently accepted on the balance sheet and income statements. Concepts such as going concern, matching, consistency, and substance over form are equally applicable to the VA statement.

    Criticisms and Limitations or disadvantages of Value Added Statements:

    It is argued that although the Value Added statements shows the application of VA to several interest groups (like employees, government, shareholders, etc.), the risk associated with the company is only borne by the shareholders. In other words, employees, government, and outside financers are only interested in getting their share in VA, but, when the company is in trouble the entire risk associated therein is borne only by shareholders. Therefore, the concept of showing value added as applied to several interested groups is being questioned by many academics. 

    They advocated that since the shareholders are ultimate risk-takers, the residual profit remaining after meeting the obligation of outside interest group should only be shown as value added accruing to the shareholders. However, academics have also admitted that from the overall point of view value-added statement may be shown as the supplementary statement of financial information. But in no case can the VA statement substitute the traditional income statement (i.e. Profit and loss account).

    Another contemporary criticism of VA statement is that such statements are non-standardized. However, this practice of non-standardization can be effectively eliminated by bringing out an accounting standard on value added. Therefore, this criticism is a temporary phenomenon.

    Thus, along with the advantages, the value added statements embody certain limitations also. These limitations are as follows:

    • Preparation and presentation of the value-added statement may lead to information overload and confusion, as an ordinary employee reading his company’s corporate annual report may not be able to reconcile the value added statement with the earnings statement.
    • Another limitation of Value-added statement is that it raises a danger that management may take the maximization of value added as their goal i.e. the inclusion of the value added may wrongly lead management to pursue maximization of firms value.
    • Another argument against a value-added statement is that its inclusion in the corporate annual report would involve extra work, therefore, extra costs and delay and also a slight loss of confidentiality in view of the additional disclosure involved.
    • The most severe limitation of value-added data emerges from lack of any uniformity and consistency amongst different companies in the preparation and presentation of Value Added statements. VAS is flagrantly standardized.
    • Since there are various methods of calculating VA, it is difficult to make inter-firm comparisons. An even intra-firm comparison is not possible if the treatment of these items is changed in the subsequent years.
    • Value Added statements may lead to confusion especially in the cases where wealth or value added is increasing while earnings are decreasing.

    In spite of these limitations, it may be said that the value-added statement brings about certain changes in emphasis rather than the change in the content in the traditional financial statement. Thus it is considered as a valuable means of social disclosure.

    Value Added Statements Definition Advantages and Disadvantages - ilearnlot

  • Commercial Paper: Definition, Features, and Advantages!

    Commercial Paper: Definition, Features, and Advantages!

    What is a commercial paper? A commercial paper is an unsecured promissory note issued with a fixed maturity by a company approved by RBI, negotiable by endorsement and delivery, issued in bearer form and issued at such discount on the face value as may be determent by the issuing company. The concept of Commercial Paper: Definition, Features of Commercial Paper, and Advantages of Commercial Paper. Implications of Commercial Paper, Impact on commercial banks, Commercial Paper in India, Future of Commercial Paper in India, Commercial Paper Market in Other Countries, and RBI Guidelines on Commercial Paper Issue. Also learned, Merchant Banking, Commercial Paper: Definition, Features, and Advantages!

    Learn, Explain each topic of Commercial Paper: Definition, Features, and Advantages!

    Commercial paper is an unsecured and discounted promissory note issued to finance the short-term credit needs of large institutional buyers. Banks, corporations, and foreign governments commonly use this type of funding.

    #Definition:

    Commercial Paper or CP is defined as a short-term, unsecured money market instrument, issued as a promissory note by big corporations having excellent credit ratings. As the instrument is not backed by collateral, only large firms with considerable financial strength are authorized to issue the instrument.

    Why Needed this?

    Commercial paper is issued by a wide variety of domestic and foreign firms, including financial companies, banks, and industrial firms. Major investors in the commercial paper include money market mutual funds and commercial bank trust departments. These large institutional investors often prefer the cost savings inherent in using commercial paper instead of traditional bank loans.

    #Features of Commercial Paper:

    • Commercial paper is a short-term money market instrument comprising since promissory note with a fixed maturity.
    • It is a certificate evidencing an unsecured corporate debt of short-term maturity.
    • Commercial paper is issued at a discount to face value basis but it can be issued in interest-bearing form.
    • The issuer promises to pay the buyer some fixed amount on some future period but pledge no assets, only his liquidity and established earning power, to guarantee that promise.
    • Commercial paper can be issued directly by a company to investors or through banks/merchant banks.

    #Advantages of Commercial Paper:

    Simplicity:

    The advantage of commercial paper lies in its simplicity. It involves hardly any documentation between the issuer and the investor.

    Flexibility:

    The issuer can issue commercial paper with the maturities tailored to match the cash flow of the company.

    Easy To Raise Long-Term Capital:

    The companies which are able to raise funds through commercial paper become better known in the financial world and are thereby placed in a more favorable position for rising such long them capital as they may, from time to time,  as required. Thus there is an inbuilt incentive for companies to remain financially strong.

    High Returns:

    The commercial paper provides investors with higher returns than they could get from the banking system.

    Movement of Funds:

    Commercial paper facilities securitization of loans resulting in the creation of a secondary market for the paper and efficient movement of funds providing cash surplus to cash deficit entities.

    #Implications of Commercial Paper:

    The issue of commercial paper is an important step in disintermediation bringing a large number of borrowers as well as investors in touch with each other, without the intervention of the banking system as the financial intermediary. Directly from borrowers can get at least 20% of their working capital requirements directly from the market at rates which can be more advantageous than borrowing through a bank.

    The forts class borrowers have the prestige of joining the elitist commercial paper club with the approval of CRISIL, the banking system, and the RBI, however, RBI has presently stipulated that the working capital limits of the banks will be reduced to the extent of an issue of commercial paper. Industrialists have already made a plea that the issue of commercial paper should be outside the scheme of bank finance and other guidelines.

    Such as, the recommendation of banks and approval of RBI has not accepted the plea at present as commercial paper is an unsecured borrowing and not related to a trade transaction. The main aim of the RBI is to ensure that commercial paper develops a sound money market instrument.si, in the initial stages emphasis should be on the quality rather than quantity.

    #Impact on commercial banks:

    The impact of the issue of commercial paper on commercial banks would be of two dimensions. One is that banks themselves can invest in commercial paper and show this as the short-term investment. The second aspect is that the banks are likely to lose interest on the working capital loan which has been hitherto lent to the companies, which have now started borrowing through commercial paper.

    Further, the larger companies might avail of the cheap funds available in the market during the slack season worsening the bank’s surplus fund position\, but come to the banking system for borrowing during the busy season when funds are costly. This would mean the banks are the losers with a clear impact on profitability.

    However, the banks stand to gain by charging the higher interest rate on reinstated portion especially of it done during the busy season and by way of service charge for providing standby facilities and issuing and paying commission. Further, when large borrowers are able to borrow directly from the market, banks will correspondingly be freed from the pressure on resources.

    #Impact on the Economy:

    The process of disintermediation is taking place in the free economies all over the world. With the introduction of CP financial disintermediation has been gaining momentum in the Indian economy. If CPs are allowed to free play, large companies, as well as banks, would learn to operate in a competitive atmosphere with more efficiently. This result greater excellence in the service of banks as well as management of finance by companies.

    Recent Trends:

    RBI has liberalized the terms of issues of CP from May 30, 1991.

    According to the liberalized terms, the proposal by eligible companies for the issues of CP would not require the approval of RBI.

    Such companies would have to submit the proposal to the financing bank which provided working capital facility either as a sole bank or as a leader of the consortium.

    The bank, on being satisfied with the compliance of the norms would take the proposal on the record before the issue of commercial paper.

    RBI has further relaxed the rules in June 1992,

    The minimum working capital limit required by a company to issue CP has been reduced to Rs. 5 crores. The ceiling on the amount of which can be raised through CP has been raised to 75% of working capital.

    A closely held company has also been permitted to borrow through CPs provided all the criteria are met. The minimum rating required from CRISIL has been lowered to P2 from 1994 – 95, the standby facility by banks for CP has been abolished.

    When CPs are issued, banks will have to effect a pro-rata reduction in the criteria are met. The while minimum rating needed from ICRA is A2 instead of A1.

    According to the RBI monetary policy for the second half of 1994 – 95,

    The standby facility by banks for CP has been abolished. When CPs are issued, banks will have to effect a pro-rata reduction in the cash credit limit and it will be no longer necessary for banks to restore the cash credit limit to meet the liability on the maturity of CPs. This will import a measure of independence to CP as a money market instrument.

    #Commercial Paper in India:

    In India, on the recommendations of the Vaghul working Group, the RBI announced on 27th March 1989, that commercial paper will be introduced soon in the Indian money market. The recommendations of the Vaghul Working Group on the introduction of commercial paper in Indian money market areas flowers:

    • There is a need to have a limited introduction of commercial paper. It should be carefully planned and the eligibility criteria for the issuer should be sufficiently rigorous to ensure that the commercial paper market develops on healthy lines.
    • Initially, access to the commercial paper market should be registered to rated companies having a net worth of Rs. 5 cores and above with good dividend payment record.
    • The commercial paper market should function within the overall discipline of CAS. The RBI would have to administer the entry on the market, the amount if each issue the total quantum that can be raised in a year.
    • Ni restriction is placed on the commercial paper market except by way of the minimum size of the note. The size of the single issue should not be less than Rs. 1 core and the size of each lot should not be less than Rs. 5 lakhs.
    • The commercial paper should be excluded from the stipulations on insecure advances in the case of banks.
    • The commercial paper would not be tied to any transaction and the maturity period may be 7 days and above but not exceeding six months, backed up if necessary by a revolving underwriting facility of fewer than three years.
    • The using company should have a net worth of not less than Rs. 5 cores, a debt quality ratio of not more than 105, current ratio of more than 1033, a debt servicing ratio closer to 2, and be listed on the stock exchange.
    • The interest rate on commercial paper would be market dominated and the paper could be issued at a discount to face value or could be interest bearing.
    • The commercial paper should not be subject to stamp duty at the time of issue as well as at the time transfer by endorsement and delivery.

    On the recommendations of the Vaghul Working Group, the RBI announced on 27th March 1989 that commercial paper will be introduced soon in the Indian money market. Detailed guidelines were issued in December 1989, through non-Banking companies (acceptance of Deposits through commercial paper) Direction, 1989 and finally, the commercial papers were instructed in India from 1st January 1990.

    RBI Guidelines on Commercial Paper Issue:

    The important guidelines are:

    • A company can issue commercial paper only if it has: 1) A tangible net worth of not less than Rs. 10croes as per the latest balance sheet. 2) The minimum current ratio of 1.33:1. 3) A fund based working capital limit of Rs. 25 crores or more. 4) A debt servicing ratio closer to 2. 5) The company is listed on a stock exchange. 6) Subject to CAS discipline. 7) It is classified under Health Code no. 1 by the financing banks, and. 8) The issuing company would need to obtain p1 from CRISIL.
    • The commercial paper shall be issued in multiples of Rs. 25 lakhs but the minimum amount to be invested by a single investor shall be Rs. 1 crore.
    • The commercial paper shall be issued for minimum maturity period of 7 days and the maximum period of 6 months from the date of issue. There will be no grace period on maturity.
    • Another aggregate amount shall not exceed 20% of the issuer’s fund based working capital.
    • The commercial paper is issued in the form of using promissory notes, negotiable by endorsement and delivery. The rate of discount could be freely determined by the issuing company. The issuing company has to bear all flotation cost, including stamp duty, dealers, fee and credit rating agency fee.
    • The issue of commercial paper cannot be underwritten or co-opted in any manner. However, commercial banks can provide standby facility for the redemption of the paper on the maturity date.
    • Investment in the commercial paper can be made by any person or banks or corporate bodies registered or incorporated in India and un-incorporated bodies too. Non-resident Indians can invest in the commercial paper on non-repatriation basis.
    • The companies issuing commercial paper would be required to ensure that the relevant provisions of the various statutes such as companies Act, 1956, the IT At, 1961 and the Negotiable Instruments Act, 1981 are complied with.

    Procedure and Time Frame Doe Issue Commercial Paper:

    • Application to RBI through financing bank or leader of the consortium bank for working capital facilities together with a certificate from the credit rating agency.
    • RBI to communicate in writing their decision on the amount of commercial paper to be issued to the lender bank.
    • The issue of commercial paper to be completed within 2 weeks from the date of approval of RBI through a private placement.
    • The issue may be spread shall bear the same maturity date.
    • Issuing company to advise RBI through the bank/leader of the bank, the amount of actual issue of commercial paper within 3 days of completion of the issue.

    Future of Commercial Paper in India:

    Corporate enterprises requiring burgeoning funds to meet their expanding needs find it easier and cheaper to raise funds from the market by issuing commercial paper. Further, it provides the greater degree of flexibility in business finance to the issui9ng company in as much it can decide the quantum of CP and its maturity on the basis of its future cash flows. CPs have made a good start.

    Since the inception of CPs in India in January 1990, 23 companies have issued CPs worth RS. 419.4 crore till June 1991. The total issues amounted to Rs. 9,000 crore in June 1994. The outstanding amount of CPs stood art Rs. 4,770 crore on March 31, 1999, and increased to Rs. 7,814 crore on March 31. 2000.

    The issues of CPs declined to Rs. 5,663 crore on March 31, 2000. It shows that the CP market is moribund. There is no increase in issuer base. i.e. the same companies are tapping this market for funds. The secondary market is virtually non-existent. Only commercial banks pick these papers and hold till mortuary. No secondary market is allowed to develop on any significant scale. Further, trading is cumbersome as procedural requirements are onerous.

    The stamp duty payable by banks subscribing charged to non-banking entities like primary dealer, corporate and non-banks instead of directly subscribing to them. The structural rigidities such as rating requirements, the timing of issue, terms of issue, maturity ranges denominational rang and interest rate stand in the way of developing the commercial paper market. The removal of stringent conditions and imposing o such regulatory measures justifiable to issues, investors and dealers will improve the potentiality of CP as a source of corporate financing.

    Commercial Paper Definition Features and Advantages - ilearnlot
    Commercial Paper: Definition, Features, and Advantages!

    Commercial Paper Market in Other Countries:

    The roots of commercial paper can be traced way back to the early nineteenth century when the firms in the USA began selling open market paper as a substitute for bank loan needed for short-term requirements but it developed only in the 1920s. The development of consumer finance companies in the 1920s and the high cost of bank credit resulting from the incidence of compulsory reserve requirements in the 1960s contributed to the popularity of commercial paper in the USA.

    Today, the US commercial paper market is the largest in the worlds. The outstanding amount at the end of 1990 in the US commercial paper market stood at $557.8 billion. The commercial paper issues in the US are exempted from the requirement if the issue of prospectus so long as proceeds are used to finance current transitions and the paper’s mortuary is less than 270 days.

    Most of the commercial paper market in Europe is modeled on the lines of the US market. In the UK the Sterling Commercial Paper Market was launched in May 1986. In the UK, the borrower must be listed in the stock exchange and he must meet assets of least  $50 million. However, rating by credit agencies is not required. The maturities of commercial paper must be between 7 and 364 days. The commercial paper is exempted from stamp duty.

    In finance, commercial papers were thought of as a fixable alternative to bank loans. The commercial paper was introduced in December 1985. Commercial paper can be issued only by non-bank French companies and subsidiaries of foreign companies. The papers are in bearer form. It can be either issued by dealers or placed directly.

    The maturity ranges from ten days to seven years. Rating by credit agencies is essential. To protect investors. Law contains fairly extensive disclosure requirements and requires publication of regular finance statements by issue. The outstanding amount at the end of 1990 in France Commercial paper market was $31 billion.

    The Canadian commercial paper market was launched in the 1950s. The commercial paper is generally used in terms of 30days to 365 days although terms such as overnight are available. The commercial paper issued by Canadian companies is normally secured by the pledge of assets. The outstanding amount at the end of 1990 in the commercial market was $26.8 billion.

    In Japan, the yen commercial paper market was opened in November 1987. The commercial paper issues carry maturities from two weeks to nine months. Japan stands second in the commercial paper market in the world an outstanding amount of $117.3 billion in 1990.

    In 1980s many other countries launched the commercial paper market, notably Sweden (early 1980s), Spain (1982s), Hong Kong (1982), Singapore (1984), Norway (1984).

  • Explain Advantages and Disadvantages of Job Analysis!

    Explain Advantages and Disadvantages of Job Analysis!

    Learn and Study, Explain Advantages and Disadvantages of Job Analysis!

    Basically anywhere asking this types of question, What is the Advantages and Disadvantages of Job Analysis? First looking What is Job Analysis?, then Objectives or Purpose of Job Analysis, after that looking study, and Explaining, the Advantages and Disadvantages of Job Analysis! Job analysis is crucial in all human activities but like all human inventions, it also suffers from various limitations. Introduction to Job analysis consists of job responsibilities, information, expertise, capabilities and personal traits and all this lead to success, for the workers. The basic reason for which the organizations require job analysis is to ensure proper selection measures for choosing the suitable applicants. Also learn, Meaning and Definition, Explain Advantages and Disadvantages of Job Analysis!

    A logical selection modus operandi is always necessary to make reasonable and trust-worthy job selections. A genuine selection procedure requires job analysis since it identifies the fundamental requirements for that specific job. The purpose of Job Analysis is to establish and document the ‘job relatedness‘ of employment procedures such as compensation, training, performance appraisal, and selection.

    What is Job Analysis?

    Job analysis helps to recognize and verify the requirements of a job and delineate the duties and obligations of the job. In job, evaluations done on the information collected about the job, the significance should always be given on the job and never on the worker or the individual. The basic notion of job analysis is that the evaluations and judgments are done depending on the job and not on the person.

    It is done through cross-examinations and surveys according to the necessities of the occupation and the analysis provides a specific explanation and requirements of the job.

    Objectives of Job Analysis:

    The aims of Job analysis is to always ascertain and record the job-related information of the employment measures like training, selection, payment and performance assessment. Job Analysis is used for classifying both training and requirement evaluations which consist of the training matter, evaluation exams to understand the usefulness of training, devices used for training and also the techniques of training. Also Learned or More info in here, Purpose of Job Analysis!

    #Advantages and Disadvantages of Job Analysis!

    Though job analysis plays a vital role in all other human-related activities every process that has human interventions also suffers from some limitations. The process of job analysis also has its own constraints. So, let us discuss the advantages and disadvantages of job analysis process at length.

    #Advantages of Job Analysis:

    Provides First Hand Job-Related Information: The job analysis process provides with valuable job-related data that helps managers and job analyst the duties and responsibilities of a particular job, risks and hazards involved in it, skills and abilities required to perform the job and other related info.

    Helps in Creating Right Job-Employee Fit: This is one of the most crucial management activities. Filling the right person in a right job vacancy is a test of skills, understanding, and competencies of HR managers. Job Analysis helps them understand what type of employee will be suitable to deliver a specific job successfully.

    Helps in Establishing Effective Hiring Practices: Who is to be filled where and when? Who to target and how for a specific job opening? Job analysis process gives answers to all these questions and helps managers in creating, establishing and maintaining effective hiring practices.

    Guides through Performance Evaluation and Appraisal Processes: Job Analysis helps managers evaluating the performance of employees by comparing the standard or desired output with delivered or actual output. On these bases, they appraise their performances. The process helps in deciding whom to promote and when. It also guides managers in understanding the skill gaps so that right person can be fit at that particular place in order to get desired output.

    Helps in Analyzing Training & Development Needs: The process of job analysis gives the answer to following questions:

    • Who to impart training?
    • When to impart training?
    • What should be the content of training?
    • What should be the type of training: behavioral or technical?
    • Who will conduct training?

    Helps in Deciding Compensation Package for a Specific Job: A genuine and unbiased process of job analysis helps managers in determining the appropriate compensation package and benefits and allowances for a particular job. This is done on the basis of responsibilities and hazards involved in a job.

    #Disadvantages of Job Analysis:

    Time Consuming: The biggest disadvantage of Job Analysis process is that it is very time-consuming. It is a major limitation especially when jobs change frequently.

    Involves Personal Biasness: If the observer or job analyst is an employee of the same organization, the process may involve his or her personal likes and dislikes. This is a major hindrance to collecting genuine and accurate data.

    Source of Data is Extremely Small: Because of small sample size, the source of collecting data is extremely small. Therefore, information collected from few individuals needs to be standardized.

    Involves Lots of Human Efforts: The process involves lots of human efforts. As every job carries different information and there is no set pattern, customized information is to be collected for different jobs. The process needs to be conducted separately for collecting and recording job-related data.

    Job Analyst May Not Possess Appropriate Skills: If job analyst is not aware of the objective of job analysis process & does not possess appropriate skills to conduct the process, it is a sheer wastage of company’s resources. He or she needs to be trained in order to get authentic data.

    Mental Abilities Can not be Directly Observed: Last but not the least, mental abilities such as intellect, emotional characteristics, knowledge, aptitude, psychic and endurance are intangible things that can not be observed or measured directly. People act differently in different situations. Therefore, general standards cannot be set for mental abilities.

    Explain Advantages and Disadvantages of Job Analysis - ilearnlot

  • What are Advantages and Disadvantages of GST?

    What are Advantages and Disadvantages of GST?

    Learn and Understand, What are Advantages and Disadvantages of GST?

    Implementation of Goods and Services Tax (GST) was one of the long-awaited fiscal reform and due to various reasons it was only hanging around and could not circumvent the obstacles for the substantially long period of time so much so that people started saying that the reform may not see a light of the day. At this juncture, we need to understand that GST could eventually become a reality only because of the various advantages it brought along. Of course, no reform can be full proof and so is GST and therefore the implementation of GST had its own disadvantages with few being inherent and intrinsic to the idea of GST, few due to the structure in which it is brought and a lot is due to the manner in which it is implemented which could have been largely avoided. Also learn, Benefits of GST, What are Advantages and Disadvantages of GST?

    Loader Loading…
    EAD Logo Taking too long?

    Reload Reload document
    | Open Open in new tab

    Download

    While we take a stock of GST as of today, we need to acknowledge the efforts taken by the government in making it much simpler from the time first model GST code was released in June 2016 to today when we are at the brisk of 200 days post its implementation. While we take a deeper dive into understanding the advantages and disadvantages of GST, we need to appreciate the fact that this being a transactional tax its advantages and disadvantages cannot be equated for all. For instance, it is possible that one sector or industry is largely benefitted due to the implementation of GST while other sector or industry has taken the exact opposite position. The point that we need to take home is that many advantages and disadvantages of GST can be closely understood only when its impact is measured industry or sector wise.

    The list of advantages and disadvantages of GST can be very long, but herein we look at some of the major ones as explained below: 

    The Advantages of GST (Goods and Services Tax):

    • Boosts Foreign Investment and improves the overall investment climate.
    • Single assessing authority.
    • Increased certainty/ Reduced litigation.
    • Erosion of parallel economy.
    • Reduced corruption.
    • Downslide of prices.
    • Common national market throughout the country, and.
    • Increase in employment opportunities.

    The Disadvantages of GST (Goods and Services Tax):

    • Not a one nation one tax in spirit.
    • Multiple Tax rates.
    • GST Portal issues.
    • Hurried implementation of the Law.
    • Working capital blockage.
    • High compliance burden.
    • Elimination of local tax incentives/ schemes, and.
    • Disconnect from Foreign Trade Policy.

    What are Advantages and Disadvantages of GST - ilearnlot

  • What are Advantages of Sole Proprietorship?

    What are Advantages of Sole Proprietorship?

    Sole Proprietorship Advantages; Proprietorship (also called sole trade organization) is the oldest form of business ownership in India. In a proprietorship, the enterprise is owned and controlled by one person. He is the master of his show, he shows, reaps, and harvests the output of this effort, he manages the business on his own. If necessary, he may take the help of his family members, relatives, and employ some employees. Also learn, How to Explain, What is Sole Proprietorship?

    Learn and Study, What are the Advantages of Sole Proprietorship? Explaining are, Easy Point, Trade, Multipoint!

    The sole proprietorship is the simplest and easiest to form. It does not require legal recognition and attendant formalities. This form is the most popular in India due to the distinct advantages it offers. William R. Basset opines that “The one-man control is the best in the world if that man is big enough to manage everything”. Also learned, Corporate Entrepreneurship Categories, and Organizational Thinking. 

    Some of the Easy Advantages of Sole Proprietorship:

    There are many reasons why a person would choose to start their business up using a sole proprietorship structure. Some of the main advantages of sole proprietorships include:

    Ease of formation:

    Starting a sole proprietorship is much less complicated than starting a formal corporation, and also much cheaper. Some states allow sole proprietorships to form without the double taxation standards applicable to most corporations. As well as, the proprietorship can name after the owner, or a fictitious name can be used to enhance the business’ marketing.

    Tax breaks:

    The proprietor of a sole proprietorship isn’t needed to record a different business charge report. All things considered, they will list business data and figures on their individual assessment form. This can spare extra expenses on bookkeeping and assessment recording. As well as, the business will charge at the rates apply to individual pay, not corporate assessment rates.

    Employment:

    Sole proprietorships can enlist representatives. This can prompt a considerable lot of the advantages related to work creation, for example, tax cuts. Likewise, companions of the entrepreneur can utilize without being officially proclaimed as a worker. Hitched couples can likewise begin a sole proprietorship, however, the obligation can just accept by one person.

    Decision making:

    Authority over all business choices stays in the possession of the proprietor. Also, the proprietor can likewise completely move the sole proprietorship whenever as they esteem important.

    Some Advantages that proprietorship form of business offers are as follows;

    1. Simple Form of Organization:

    The proprietorship is the simplest form of organization. The entrepreneur can start his/her enterprise after obtaining licenses and permits. There is no need to go through the legal formalities. For starting a small enterprise, no formal registration is statutorily needed.

    2. Owner’s Freedom to Make Decisions:

    The owner, i.e. the proprietor is free to make all decisions and reap all the fruits of his labor. There is no other person who can interfere or weigh him down. Why is Intrapreneurship Better than Entrepreneurship?

    3. High Secrecy:

    Secrecy is another major advantage offered by proprietorship. This is because the whole business is handled by the proprietor himself and, as such, the business secrets are known to him only.

    Added to it, the proprietor is not bound to reveal or publish his accounts. In the present-day business atmosphere, the less a competitor knows about one’s business, the better off one is. What the competitors can make is guesstimates only.

    4. Tax Advantage:

    As compared to other forms of ownership, the proprietorship form of ownership enjoys certain tax advantages. For example, a proprietor’s income is taxed only once while corporate income is, at occasions taxed twice, say, double taxation.

    5. Easy Dissolution:

    In the proprietorship business, the entrepreneur is all in all. As there are no co-owners or partners, therefore, there is no scope for the difference of opinion in the case the proprietor/entrepreneur-wants to dissolve the business. It is due to the easy formation and dissolution, the proprietorship is often used to test the business ideas.

    Advantages of sole trading include that:
    • You’re the boss.
    • You keep all the profits.
    • Start-up costs are low.
    • You have maximum privacy.
    • Establishing and operating your business is simple.
    • It’s easy to change your legal structure later if circumstances change, and.
    • You can easily wind up your business. Also learned, What are the Disadvantages of Sole Proprietorship?

    14 best Multipoint Advantages of Sole Proprietorship:

    The following multipoint advantages below are step by step;

    (i) Easy in Formation:

    The sole proprietorship is the only form of organization where no legal formalities are requiring to perform. Also, Anybody wishing to start a sole trade concern can do so without loss of time. This business is absolutely free from legal formalities. On the other hand, if a joint-stock company is to form it needs the services of experts to get it incorporate, and it involves a lot of labor and money.

    (ii) Better Control:

    In this form of organization one man is responsible for all types of activities. He controls all functions of the business. He himself takes decisions at the appropriate time. The authority and responsibility lie with one man. He cannot afford to be complacent in taking decisions. If the responsibility is divided, then there can a possibility of shifting obligation to other persons (Everybody’s responsibility becomes nobody’s responsibility). Insole trade business, there is no such difficulty. As well as, the owner is all in all and he cannot escape his work. The business is controlled effectively.

    (iii) Flexibility in operations:

    A sole proprietorship concern is generally run on a small scale basis. In case a change in operation is requiring, it can be possible without involving much expenditure. Even if a new line of products is to take up, it will not involve many efforts. On the other hand, if the operations are on a large scale, then it becomes difficult to change the method of production.

    A small-scale concern can adjust its production according to the changing demand pattern. It can increase and decrease its products as per requirements. Moreover, no legal formalities are requiring for making changes in operations. As well as, a joint-stock company cannot go beyond its objective clause. Because of being flexible in operations, a sole trade concern is most suitable for industries dealing with fashionable and seasonal goods.

    (iv) Retention of Business Secrets:

    A sole trader maintains business secrets. Being the sole proprietor, he is not expected to share his trade secret with anybody else. As well as, He is not expected to publish his accounts. He can maintain secrecy from his competitors. Secrecy is very important for small-scale concerns.

    (v) Easy to Raise Finance:

    An individual entrepreneur can create goodwill for his business. This helps him to establish his creditworthiness in the market. Secondly, the liability in a sole trade organization being unlimited, the creditors can have a claim over the private property of the owner. As well as, the creditors feel secure in extending credit to individual proprietors. Moreover, they try to repay the loans as quickly as possible so that they do not lose goodwill in the market. Once a sole trader loses his creditworthiness, he will not be able to get much help from the market.

    (vi) Direct Motivation:

    The proprietor takes a keen interest in the working of the business. He tries to put heart and soul into the business to earn as many profits as he can. There is a direct relationship between efforts and rewards. In other forms of organization, the profits are shared by more than one person. So everybody may not put in his best efforts.

    (vii) Promptness in Decision Making:

    All important decisions are taking by one person. He can take prompt decisions. He will not let an opportunity slip away. If more than one person is involving in decision making then delay is bound to occur.

    (viii) Direct Accessibility to Consumers:

    In insole proprietorship the scale of operations is small. The owner can have direct contact with customers and employees. He can know the relations and preferences of consumers. It enables him to make necessary changes in the quality and design of his products. It will help him to boost his sales. He can also emphasize consumer service.

    (ix) Inexpensive Management:

    The sole trader is the owner, manager, and controller of the business. He does not appoint specialists for various functions, he personally supervises various activities and can avoid wastage in the business, he does not create managerial paraphernalia. In this way, managerial costs are saving to a large extent.

    (x) No Legal Restrictions:

    There are no legal requirements for starting a business. No special acts are governing the work of a sole proprietor. As well as, the proprietor is not requiring to submit the results of his business to any authority. There is no restriction in changing the nature of the business. Even the dissolution of the business can easily undertake. The tax liability on a sole trader is also low. He is a tax as an individual and not as a business unit.

    (xi) Socially Desirable:

    One man business is generally on a small scale basis. Large numbers of sole traders have entered all types of business. It helps in avoiding the concentration of wealth. Large-scale business leads to wealth accumulation in a few hands. Also, the Sole trader business provides competition for other businesses. The consumers will not be dependent upon big business houses. So, the sole trade business is socially desirable.

    (xii) Self-Employment:

    The sole proprietorship form of organization offers the means of self-employment to those who do not want to serve others. As everyone cannot get a suitable job to earn his livelihood in a developing country, the individuals can easily start a small-sized business unit as a sole trader.

    (xiii) Healthy Relations with Employees:

    A sole trader is in a position to maintain direct relations with his employees. This enables the employer and the employees to understand and appreciate the difficulties of each other. Moreover, a sole trader can quickly solve the grievances of his employees. This results in healthy relations between employers and employees which is of vital importance to the success of the business.

    (xiv) The benefit of Inherited Goodwill:

    A sole trader passes on the business goodwill to his successor. Technically a sole trade business is dissolving on the death of the owner but in reality, the same business is continuing by an heir. Also, the goodwill which one person earns during his lifetime is passing on to those who continue that business.

    What are Advantages of Sole Proprietorship - ilearnlot
    Photo Credit to pixabay.com/ More free Images!

    Reference!

    1. Easy and business Points – //www.legalmatch.com/law-library/article/advantages-and-disadvantages-of-sole-proprietorships.html and //www.yourarticlelibrary.com/sole-proprietorship/sole-proprietorship-features-advantages-and-disadvantages/40806
    2. Trade Points – //www.business.tas.gov.au/starting-a-business/choosing-a-business-structure-intro/sole-proprietorship-advantages-and-disadvantages
    3. Main/Multipoint – //www.yourarticlelibrary.com/business/advantages-and-disadvantages-of-sole-proprietorship/42037

  • Organizational Values: Definition, Sources, Advantages, and Disadvantages!

    Organizational Values: Definition, Sources, Advantages, and Disadvantages!

    Organizational Values: An organization is an artifact, social entity, has structured activities, nominal boundaries and it is goal-directed. The Concept of Organizational Values: Definition of Organizational Values, Sources of Organizational Values, Advantages of Organizational Values, and Disadvantages of Organizational Values! Influence of Organizational Values on Organizational Practices and Processes. Values can explain in a few perspectives according to various sources.

    Learn, Explain Organizational Values: Definition, Sources, Advantages, and Disadvantages!

    In ethics, the value represents the importance of physical and abstract objects which is ideally accepted by individual or group. It can also define as qualities that are considering worthwhile that represent an individual’s highest priorities and deeply held driving forces. Values are often admixture with knowledge, norms, and beliefs. Also learned, What are the Participation and Organizational Climate? Organizational Values: Definition, Sources, Advantages, and Disadvantages!

    Beliefs can prove right or wrong by one but not values. Beliefs may vary by cohort, time, geographical differences but values are universal, true for anybody at any time, whenever an individual is. Organizational values are ethical codes that guide behavior by putting assumptions into practice. It also serves as qualities that an organization appreciates and would require members of the organization to chase after.

    Organizational values are the ideology of an organization and practiced by the organization from the employee treatment, technology development, customer or any other external environment interaction. It is part of the important element that forms an organization’s culture and it emanates deep from an organization’s soul.

    Source and Origin of Organizational Values:

    Organizational values are closely associated with human values. It can perceive as an extension of human values, which can categorize into two: instrumental and terminal value. Positive, honest, integrity, responsible, helping the needful are some examples of values. Terminal value relate to goals or desired stage, whereas instrumental values relate to what needs to apply to achieve a terminal value. Example: one’s terminal value being to provide a good life to family members, and instrumental value being to be hardworking and responsible in everything aspects.

    Organization values that contradict with human values will leave the members of the organization uncertain and confused about their roles. Problems that plague the society will mirror in the organization. Values do not come from conscious intentions but rather, from the highest expression out of the free will. Some organizational values are not consciously created but are part of the fabric of the organization, as a result of founders’ views.

    Values might discover and practice by founders during the early days. Values remain unchanged but evolved over the years unnoticeably until the organization decided to encapsulate it in words and lay as a fundamental part of the way the organization thinks.

    Extra knowledge:

    Some organizational values are creating consciously by the management team who decide to improve company’s performance systematically. Frameworks, methods might introduce to capture the organizational values to reveal findings. Values could derive from the organization’s goals. It is a set of principles that guide an organization to success and through difficult situations. It is not to compromise for short-term expediency or financial gain.

    Organizational values are so special that it superseded corporate strategy, technological advantages or market presence to be the power that resides in shaping a successful organization. Organizational values define the acceptable standards which govern the behavior of individuals within the organization. Without such values, individuals will pursue behaviors that are in sync with their value systems, which may lead to behaviors that the organization doesn’t wish to encourage.

    Advantages of Organizational Values:

    Organizational values promote the healthy growth of an organization. According to Maslow’s hierarchy of needs, humans have a fundamental need to associate with something that they can feel proud. With the tight association, all members have with an organization, the individual’s membership defines and subsequently creates a committed workforce.

    Organizational values also let members of the organizations stay motivated. The external motivation by managers is less effective than in a routine-based society and work process. Therefore organizational values should take into consideration to promote intrinsic motivation of the organization’s members.

    The nature, role, and function of values are considering a central part of the organizational value foundation of a corporate brand. Organizations with good organizational values perceived as socially responsible corporate and generally well accepted by the public. Brand value increase and therefore drive good returns from the public, in terms of sales, as well as brand image. Organization identity is strong and helps differentiate the organization from competitors.

    Organizational values are vital for continuity, consistency, and credibility in a value-creating process. As values ensure everyone in the organization is working towards the same goals by the same principles and adhering to the same standards. Organizational values foster the organization’s morale and protect an organization’s reputation. Values are cognitive, affective and provide directions. It drives organization groups towards the common target.

    Disadvantages of Organizational Values:

    Values are important to study organizational behavior because the value is the foundation of how people behave. Personal values might contradict with organizational values although values are typically good. Example some organizations’ reward system is based on seniority. People that value performance higher than seniority will tend to need to deal with disappointment when they are bounding by the reward system based on seniority.

    Both seniority and performance are good values but in this case, people disappoint due to different value hierarchy. When there is a contradiction, the individual could either place personal values as a top priority against the organizational value and vice versa. When individual prioritized personal values, organizations’ benefits are at risk of sacrifice. Individuals might feel depressed as well when organizational values took over personal values.

    Individuals might suffer imbalanced life from practicing organizational values, such as ‘hardworking’ as organizational value and member of the organization might require to practice it and slack in terms of personal life, which is not a good sign from society harmony point of view.

    Organizational value somehow define organizations’ goals to a certain extent. It might limit the organization’s pursuit of other achievable goals due to principles and standards generated by the defined organizational values.

    Organizational value makes an organization harder to change their existing reputation if an organization decided to change the public’s perception that has long formed. It makes a reputable organization’s journey to a breakthrough existing image, a hard one.

    Influence of Organizational Values on Organizational Practices and Processes:

    Personal values shape individuals’ attitude and impact an individual’s behavior. Similarly, organizational value also influences how an organization ‘behaves’ because it will then determine the destiny of that organization.

    Organization Practices and Processes are then set up, to follow. Serve as guidebooks to ensure the organization is pursuing the right path towards common goals on a day to day execution perspective. These practices and processes served as written controls and guidelines for members of an organization to perform. Their day to day job to achieve common organizational goals.

    Business processes are set of living documents although. There should not be frequent changes to review from time to time. Some organizations spend a huge amount of investment to review and redesign processes. The design teams tend to be ambitious to design processes that ‘work on paper’. Issues arise during the execution phase. Situations become more complicated if staffs are not governed by organizational value’s. Policies and practices are as good as the human that man many subsystems and sub-processes.

    An organization can have the best-designed processes but still cannot be a world-class organization if humans. As part of the key factor is not behaving how they should be. Other than processes, policies, and practices also include organizational enablers. An enabler is a technical facility or resource that makes it possible to perform a task, activity or processes. Organizational value also influences the organizational enablers directly which consequently impact the organization’s policies and practices.

    More read it:

    Typical business processes involved in an invoice and servicing customers include billing the customer. Provide after-sales service and responding to customer inquiries. If an organization induce “trust and personal responsibility to every client’s success”. As an organizational value and this is being practiced across the organization including the invoice department. It is almost certain that customers will receive superb customer services and that organization can expect regular return customers without much of marketing effort. But if the invoice department does not practice the organizational value. It is most likely to be the pain point for customers to deal with, and the staffs do not feel their responsibility towards the organization’s success.

    If an organization is sales-Oriente and take customers as the highest priority. The internal policies making would also align to support the organization’s values. This direction does not only apply to external customers but will also determine inter-departmental interaction mode. One department becomes another department’s internal clients and staffs take cross-departmental interaction seriously instead of having a bureaucracy attitude.

    By Research;

    World-famous technology leader, Sony’s core values are to be a leader, not the follower. The organizational value has been driving the company to be notable as the ‘first’ to introduce cutting-edge electronic devices, recording, and storage technologies to market all time. Sony refuses to stay in the position of adopting standards of other manufacturers set.

    Sony spends millions of dollars in the Research and Development Department every year to sustain as the leader in new product introduction. ‘Walkman’ is a Sony brand trademark originally uses for the portable cassette player. It was invented by Sony’s audio division engineer Nobutoshi Kihara in 1979 and other electronic companies then followed the idea, innovatively. Sony also was the first to launch other electronic products such as Compact Disc players, gaming console, Play Station to name a few.

    Organizational Values Definition Sources Advantages and Disadvantages - ilearnlot
    Organizational Values: Definition, Sources, Advantages, and Disadvantages!